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Bootstrapping, a way to make stronger businesses?

with 3 comments

 

IT entrepreneur

Some entrepreneurs unfortunately lost their business or project, because they made it with some investors who wanted to have a certain short-term return on investment level. As the expected return on investment was not reached, the founders of the project were sanctioned by the investors and pushed out of the company.

I read in the Belgian economical magazine Trends-Tendance, the story of three partners who had to face such adventure. These three engineers decided to start a new project, but following a totally different business model. They build a new business in the field of digital imaging, a technology having customers in the medical and aerospace sectors. The major concern of this business was to protect the intellectual property of such technology. The patent price for such technology is expensive, and the three partners have to allocate the major part of the profit of the activity to the deposit of such patent. To reach that goal, the challenge was to make the needed profit, and in this case to do business based on a low cost model. They have no offices. Each of the partners is working at home, having only meetings when necessary. They are using free open sources software, communicating thru free voices over IP systems, like Skype. They have no company cars, and are maximizing their travel with public transport, and eventually renting a car when really necessary. One of the partners explain that to work in such a way has of course an impact on their professional and personal life. It implies to have new habits, but the conclusion is that they keep the control on their business and they are very happy.

By thinking about this experience, we note that these entrepreneurs took the option of bootstrapping. Bootstrapping means that you start your activity or business with limited funds and without partnership with investors. It implies that you will have to contract only the necessary costs to develop your business. In each case, you will consider if there is an opportunity to spare money, or to contract a service or a good for a better price. You will also consider if you can do it yourself. The chance to succeed in such process is linked to the competence level of the partners. What you can do yourself is an opportunity for cutting costs. A partnership with members having different and complementary competences will be definitively an asset. In such process, we can maybe see an opportunity to build businesses with much more added value. As your margin are thin, more attention will be paid to the return on investment of the contracted expenses, and maybe the basis of the business could be stronger. You will probably invest money in tools providing more added values to your project and more return on investment after, instead of investing in a luxurious car, which can bring maybe more appearance but which will not contribute to increase the quality level of your product or your services. With the development of technologies, we can more easily see than before, the level of people competences and services performances. This is what the customer is looking for.

But do not forget that such approach is not always a guarantee of success. Each project needs a minimum of capital in order to be implemented. The lack of capital make that some projects are never concretised. Nevertheless, this way to operate will make that people will probably do business on another way, with long term views contributing to develop a sustainable economy where imagination and creativity will be the motivation and the profit the middle to make the dreams work.

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Written by Eric Saint-Guillain

March 21, 2011 at 22:25

3 Responses

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  1. sounds like my life: “…to do business based on a low cost model. They have no offices. …They have no company cars, and are maximizing their travel with public transport, and eventually renting a car when really necessary…”

    Nice post

    Abdelkrim

    April 3, 2011 at 23:55

    • Aldelkrim,
      Thank you very much for your comment. 😉

      Eric Saint-Guillain

      April 4, 2011 at 07:19

  2. you have brought up a very good points , appreciate it for the post.

    Jolie

    April 11, 2011 at 08:45


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